Mahindra Retail in consolidation mode, identifies growth areas

Mumbai: After a challenging 2013, when its ambitious expansion drive coupled with a subdued demand environment led to the shutdown of over 10 stores, Mahindra Retail Pvt. Ltd, part of the $16.7 billion Mahindra Group, is now in consolidation mode and has identified key areas of growth, said chief executive officer K. Venkataraman.

Mahindra Retail sells specialty children and maternity products including apparel, toys and wellness items at the Mom and Me and Beanstalk chains.

“We have been in consolidation stage since the beginning of 2014. Going forward, we will work on three target areas of growth for the company: merchandising, asset-light franchising model and a well-rounded online strategy,” Venkataraman said.

“What happened last year was that at the macro level, there was poor sentiment in terms of demand and which led to build-up of inventory. And over 40% of the products we sell are imported and rupee depreciation affected our pricing ability, not to forget that the online competition has also led to a price war.”

Backed by the deep pockets of the Mahindra Group, Mahindra Retail was started in 2009 and expanded to over 140 stores in five years, but had to shut over 10 stores last year.

“Internationally, stores open and shut all the time. In the last five years, we have shut 11 of the 140 stores, which really isn’t a big deal,” said Venkataraman, adding that Mahindra Retail has seen many ups and downs and the journey has been both “challenging and exciting”.

“We deal in a niche category, that is in mother-and-child retail, and have very little competition. However, we have had to create a whole demand for such clothes in India. The journey has been difficult. The category was very underpenetrated and we were trying to create a concept for mother-and-child retail,” Venkataraman said.

The baby and children’s care products market is estimated to be worth $11.8 billion and is forecast to grow at a compound annual growth rate of 17% to $26.2 billion by 2017, according to an April 2013 report by RNCOS E-Services Pvt. Ltd, a research company.

The worst might be over for Mahindra Retail and going forward, it wants to leverage its learning of the past five years and will focus on merchandising. “After two-three years of testing brands, price points and products, we would like to make merchandising a key growth area,” Venkataraman said.

Apart from that, it has a more asset-light approach and will focus on franchising stores and push for online sales. “We want to increase the number of franchisees and grow our online presence by tying up with online retailers and marketplaces like Flipkart, Snapdeal and Amazon,” he said.

The retailer currently has 140 stores, out of which 18 are franchises. “We want to have 200-plus stores in the next three years and we will add 15 franchised stores this year itself.”

For Mahindra Retail, the segment it deals in has been the biggest challenge. “Our total target audience is about 15-20% of the population and it will take another two-three years for us to become an automatic choice for people,” Venkataraman said.

To speed up that process, the company has been conducting activities and contact programmes in many maternity hospitals across the country and has tie-ups for stores with some hospitals such as Cloud Nine in Bangalore, Fortis Memorial Research Institute in Gurgaon and The Cradle in Kozhikode.

According to Arvind Singhal, chairman of Technopak Advisors Pvt. Ltd, a retail consulting firm, there were no surprises about Mahindra Retail shutting stores, as several bigger retailers, including niche companies, struggled to get the business model right in the wake of economic slowdown, with high real estate prices posing a big hurdle.

“Mahindra Retail also did the right thing by shutting a few stores. But now, adapting to e-commerce would be the new challenge and opportunity for the group. Three years ago, e-commerce opportunities were not there. Now, there is a market and more companies are there to compete,” Singhal said.

Venkataraman said that even though it was a difficult segment to be in, it had a high-margin business. The company expects to break even in a couple of years. “Fortunately, franchising is the asset-light model and easy result oriented and that way, we can keep our capex down. Most of our brands are just two years old and we will see them turn around in FY15 and FY16.”

Mahindra Group’s vision is to make Mahindra Retail a “global brand from India”. The company plans to take its brand international. “As we speak, the plans are on and in the next three-six months, we might go international,” Venkataraman said.

Technopak’s Singhal said that as a group, Mahindra has done well in developing several consumer-facing products beyond tractors.

Mahindra Retail is still very attractive as there are no big competitors in its segment, he pointed out.